If you live in Karnataka and are someone who loves to binge on your favourite content at home, then this story is for you!
Karnataka’s New Cine and Cultural Welfare Bill
As per the recently passed Cine and Cultural Activists (Welfare) bill, a cess of upto 2% shall be imposed on online streaming, movie tickets, and television channel subscriptions.
This cess is aimed to provide financial assistance to those employed in the state’s cultural sector. The assistance shall be driven by the imposition of a cess on multiple revenue-generating businesses in the sector, and potential introduction of another compliance mechanism for streaming services to ascertain their subscriber base in Karnataka.
The bill further mandates the creation of a fund that would seek contributions from the employers in the Karnataka’s cultural industry, in order to support the welfare measures for the workers in the industry. If any employer does not comply, it could result in legal penalties.
However, at the same time, it does not define who qualifies as an employer, leaving ambiguity about whether streaming services are included. After all, these companies may not employ people in Karnataka or have offices there–so would the obligations on employers apply to them?
Even the extent of revenue-generating activities are not clarified by the bill. The bill appears deliberately vague its imposition on movie tickets, subscriptions, and ‘all’ other revenue.
However, this does not seem like a mistake but rather a calculated attempt to capture multiple revenue streams from businesses.
While subscriptions are the main revenue source for streamers, supplementary activities like promotions, fan events, special screenings, content syndication and licensing, as well as partnerships with telecom providers, also contribute to their income.
As per the authorities, any revenue generated in Karnataka will attract the cess, however, there is a need to differentiate between core and supplementary activities, too.
For instance, we can throw some light on the telecom industry wherein last year, the telecom department specifically excluded non-telecom activities to ascertain the relevant revenue base of telecom firms. It addressed the telecom firms’ confusion about which activities must be considered for revenue base.
The clarification relieved the firms from paying excess licence fees by accident — because they already pay eight per cent of the revenue base as licence fees to the government.
Lack of Clarity in Karnataka’s New Entertainment Cess Bill & Potential Hurdles and Lessons from Kerala’s Past
If there is no clarity like this, broad provisions in the bill are likely to lead to frequent industry requests for clarifications, creating operational hurdles.
In addition to this, the bill also fails to specify how it shall be determined which subscribers of streaming services are based in Karnataka, potentially leading to new regulatory obligations and compliance outlays for this new calculus.
Another instance of state of Kerala wherein the Local Authorities Entertainment Tax (Amendment) Act 2013 – which introduced a cess of Rs 3 per movie ticket. However, the law was later rendered ineffective since it failed due to the rise of online booking and the failure of administration to maintain accurate data on cess collection, rendering the law ineffective.
